I had a creditor cancel a $3800 debt and issue me a 1099-c. At the time they cancelled it I had a total debt of about $32000 and about $25000 in assets. I plan to use form 982 to avoid paying taxes on this. If I check box 1b and enter the amount on line 2, is there anything else to do?

For line 10a I'm supposed to enter the lesser of the basis of my assets, the debt cancelled, or the total excess of my assets over my total debt. Since I still owe more than I have in assets that would be a negative number. Do I just enter 0 on line 10a?


Thanks.

#1; You must fill out IRS Form 982 if you have been released of an obligation to pay a financial obligation. Such discharge must be reported to the tax authority, as it may qualify as income, and be therefore subject to income tax., but you are allowed to exclude that discharged debt under certain circumstances and you use Form 982 to do that. If the 1099-c received was for credit card debt, then you need to check the box 1 b; If you received one or multiple 1099-c forms then you add up the totals of all forms you received and place that total on line 2.



#2; Line 10a is for credit card debt settlement. You must put the same amount you placed on line 2 on line 10a. Then must match as you will earn yourself an instant audit, which none of us want. You need to fill out an insolvency worksheet. If filiing by mail, this worksheet MUST be included with the 982 regardless of if you have to pay taxes on the settlement or not.

thanks for the reply.

So for box 10a, I then need to reduce the basis of my property by that amount? How is that done exactly? The only property I own is a vehicle (original loan for 16,000, 1800 left to pay, and worth about 8000) and normal household furnishings, etc. I don't own any real estate or anything I would sell for a profit.

Input, on line 2 of 982, the total amount of forgiven debt you wish to exclude from income. Generally, this will be the amount reported to you on Form 1099-C.Input, on Part II the amount from line two onto line 10a, "Applied to reduce the basis of nondepreciable and depreciable property.Insolvency is calculated with FMV of assets.Tax attribute reduction (if there are no NOLs, capital losses, etc) is based on book value.For example a 10 year old car worth $3K, may have cost $25K. You use the $25K value in the attribute reductions. If you still come up negative after using cost bases, then you put $0 on 10a and explain in the attached statement that you have reached the reduction limit.
SO, If your total debts AFTER the cancelled debt EXCEED your total assets at their adjusted bases, then you have reached the debt reduction limit and the value for 10a would be $0.I guess you ned to contact a CPA/an IRSEA in your local area for mroe info in detail for your specific situation.


Note; you njeed to determine if the forgiveness of your debt is related to a qualifying event. Typically, the only qualifying reasons for the forgiveness of nonbusiness bad debts, such as credit card debt, are a Ch. 11 bankruptcy or declared insolvency of the taxpayer. If either of these two events do not apply, you may generally not file Form 982 for credit card debt forgiveness and must report the forgiven debt as ordinary income

On 1-22 I filed for chapter 7 bankruptcy. On 1-25 I received the 1099-c, it said the debt was cancelled back in October, they didn't inform me until 1-25 when I got the 1099.

Do you think I'll have any issue just using the form 982 and entering the debt amount on line 2 and line 10a?

Thanks.

sorry not sure; you need to contac the IRS for more info in detail(for sure)